The problems that have bedevilled
Japanese banks are well known — the quicksand of ‘‘directed
lending’’, NPAs, and the rest — as is the way these problems have
been at the heart of Japan’s inability to pull itself out of the
trough for over a decade. The Long Term Credit Bank of Japan, the
giant LTCB, followed the same trajectory as other banks, except
that it has suddenly, in just two years, shot out of the pack.
established in 1952. It was one of the principal financiers of
Japan’s phenomenal industrialisation after World War II. As the
1990s rolled on, its troubles became deeper and deeper. It went
bankrupt. To prevent the collapse from bringing down other parts
of the banking sector, the Government had no alternative but to
nationalise the bank. That was in 1998.
continued to haemorrhage. Soon, in June 2000, it had to be sold to
a consortium of international investors. That was a thunderclap
for Japan — this was the largest organisation that had to be sold
to foreigners. The bank was renamed the Shinsei Bank.
In just two
years, it has turned around, even as others are still in the
morass of old problems. It turns out that Indian professionals — a
thousand of them from Nucleus Software Exports, Mphasis, Polaris,
i-Flex Solutions and Wipro — have played a crucial role in
transforming the bank: they are the ones who have completely
re-engineered the bank’s processes, they are the ones who have
reorganised the bank’s operations around a completely new, modern
And they have
done it all in record time, and with record economy: the new,
transformed retail bank has been launched within one year instead
of the anticipated three; implementation costs have been 90 per
cent less than estimated; a range of new financial products has
been launched that are better than what competitors are giving;
hardware too has been drastically downsized. When I was in Tokyo a
few weeks ago to open an Indian IT fair, the success of these
professionals in rehabilitating the Shinsei Bank was the talk of
the banking and IT community in Japan.
What is it that
Indians could bring to this task that, say, Chinese software firms
could not? The Indians could not just write software for different
functions and transactions that the staff of the bank had to
perform — the Chinese too could have done this: China also has a
very large software industry that today caters to its domestic IT
market, a market which is many times that in India.
The Indians could
bring to bear on the task expertise in a host of other domains —
for instance, knowledge of financial markets, of modern commercial
banking, of accountancy — and thereby provide not just software
but complete solutions, from software to hardware to completely
new business models.
high-end Indian garment industry can avail of not just cheaper
labour. In addition it can tap into our fashion designers. Is it
any surprise then that Wal- Mart sources $1 billion worth of goods
— that is, half of its apparel — from India? That GAP sources
$500-600 million from India? That Hilfiger sources $100 million?
The point is the
successes we have encountered above are not fortuitous. India has
a score of strengths that others do not.
Cost is one of
them. Nor is it a marginal advantage. Indeed, the difference
between the cost at which we can provide services and many
commodities of comparable quality and what those cost in the
developed world is so vast that, should those firms and economies
shut themselves out from our supplies, they are the ones who will
be severely disadvantaged, they are the ones who will be making
* Indian IT firms
provide world-class services at one-tenth what the same services
would cost in the United States.
* An MBA costs
about $5,000 in India. In the US, an MBA costs around $120,000.
* Developing a
new automobile model in the US costs about $1 billion. Indica and
Scorpio have been designed, developed and produced totally in
India. They have been acclaimed abroad, and found to be up to
international standards. The cost of designing them? Less than
half what the design would cost in the US.
* In an important
address — you will find it in FICCI’s publication, Unleashing
India’s True Potential: CEO’s Vision of the Future — M.S. Banga,
chairman, Hindustan Lever, reports results of inquiries that the
company made. In spite of high power costs, high interest rates,
it found that the capital costs of setting up plants in India to
produce an item like toothpaste for Levers worldwide were just 35
per cent of what its sister companies in the US and Europe would
have to spend. And the conversion costs were just 15 per cent. In
tea bags they were just a quarter of what they would be in the US.
accounts for about half of Hindustan Lever’s exports of Rs 1,500
crore a year. But Banga surmised, by being just the hub from which
Levers’ units worldwide would source their requirements of such
goods, Hindustan Lever could build up a business of $1 billion a
year — that is Rs 5,000 thousand crore a year. Moreover, as it
would be marketing directly to these companies, it would save on
the costs of reaching, winning, retaining the individual customer.
* Surgery: Arvind
Netralaya performs a cataract operation, including the cost of the
lens, for $12; that very operation costs about $1,500 in the US. A
bypass surgery in India costs around Rs 40,000; in the US it can
cost anything upwards of Rs 6 lakhs. The cost of open-heart
surgery in the UK or the US can be anywhere between Rs 15 lakhs
and Rs 35 lakhs as against Rs 1.5 lakh to Rs 5 lakhs in the best
of hospitals in India. The cost differentials in more complicated
surgeries — liver and kidney transplants, etc — are even higher.
another strength — far, far more important than material resources
in several sunrise activities. Most would have been surprised to
read recent accounts in magazines such as Business World of India
being looked upon as a research hub by company after choosy
company. FICCI’s list includes:
* Over 70 MNCs,
including Delphi, Eli Lilly, General Electric, Hewlett Packard,
Heinz and DaimlerChrysler, have set up R&D facilities in India in
the past five years. Together with laboratories set up before
1997, 100 of the Fortune 500 have set up R&D facilities in India.
By contrast, only 33 of the Business Week 1000 companies have R&D
centres in China.
* The scale of
these operations also tells the tale. Just four years ago, Intel
had a mere 10 persons working in India; today it has over 1,000.
GE’s John F Welch Technology Center in Bangalore is the company’s
largest outside the US. With an investment of $60 million, it
employs 1,600 researchers. GE’s R&D centre in China by contrast
employs only 100.
The Indian centre
devotes 20 per cent of its resources to fundamental research
having a five to 10 year horizon in areas like nanotechnology,
hydrogen energy, photonics and advanced propulsion. With 17
clinical trials (10 of them global), the Eli Lilly research
facility at Gurgaon is its largest in Asia and the third largest
in the world.
* GE Medical in
Bangalore has developed a high resolution-imaging machine for
angiography to meet GE’s entire global requirement. It has also
developed a portable ultrasound scanner that is exported around
the world from Bangalore.
* Two-thirds of
GE Plastics’ 300-member research team in India is doing
fundamental research on molecules. GE Plastics has contributed to
the development of a family of polycarbonates of engineering
plastics that are being used in auto headlamps and CDs. It has
also developed heat resistant monomers for applications in
aircraft bodies and high-end medical equipment.
* GE Motors India
has developed an almost noiseless motor for GE’s most
sophisticated washing machine lines in the US; it is the sole
sourcing point for a million of these motors every year.
* Monsanto has
been in India for over 50 years. After examining China and India,
it set up its first non-US research facility in Bangalore in 1998.
This facility is responsible for Monsanto’s R&D for Asia. The
company is researching ‘‘promoters’’ — accelerators that improve
Pune Research Lab develops refrigerators and air conditioners for
Asia (including China) and Australia. Forty per cent of this
facility’s resources are devoted to its core research on global
DaimlerChrysler Research Centre in Bangalore is engaged in
fundamental and applied research in avionics, simulation and
* HP Labs India
has built a prototype that can scan handwritten mail through a
small handheld device instead of a scanner. It has also built the
prototype of a computer for unsophisticated users.
You can extend
the list many times over by just following our business newspapers
and magazines for a week. Moreover, while youthful professionals
and entrepreneurs have been adding these sinews, the most
far-reaching structural change has taken place:
* The proportion
living below the poverty line has fallen from 36 per cent to 27
* The balance of
power between state and society in the economic sphere has been
overturned: the dismantling of the licence-quota raj, the transfer
of power to regulators in one sector after another.
Indeed, not a
week passes and there is yet another advance in economic
management. One reason these changes do not get adequate notice is
that, many of the structures having been set up, the improvements
are now in the details. Those who are acquainted with economic
policy and administration know that each of these improvements
will have far-reaching consequences as the years go by. But as the
improvements are in the details, most of us miss their
As a result of
such steps, many of the handicaps that hobbled our entrepreneurs
have been eased in the past few years. Initiatives in different,
seemingly distant fields have reached fruition. And the effect is
not additive, it is multiplicative:
* The turnaround
time in our ports used to be eight to 10 days; it is now four-and-
* As recently as
1999, our telecom infrastructure could provide a bandwidth of only
155 Mbps; today it is able to provide terabit capacity, that is,
75,000 times what could be provided just four years ago. Within a
year or so, as the fibre optic network being laid by various
enterprises gets in place, it will not matter whether your office
is in San Jose, California or in any of 300 cities in India.
* Till the other
day we used to be in awe of the rate of expansion of mobile phones
in China — a million a month. In the past two months these have
increased in India by almost 1.5 million a month.
* Long distance
telephone tariffs have fallen by two-thirds in five years.
* Tariffs for
data transmission have fallen by 80 per cent in three years.
* The work done
by the far-sighted people who set up what seemed at that time such
an esoteric institution, one oriented to the rich elite, the
National Institute of Design has borne fruit. Today graduates of
that fine institution help design cell phones, CAT-scan and MRI
too have been eased. Interest rates have come down drastically,
foreign exchange restrictions for business purposes are as good as
On the other side
is the fact that the developed world will increasingly require
services and personnel from a country such as India. We are the
ones who have to be swift enough to prepare for and grab the
* Various studies
conclude (you will find them summarised in the All India
Management Association’s India’s New Opportunity - 2020) that the
workforce of developed countries will fall short by 32 to 39
million by 2020. In the US alone the shortfall is expected to be
between 8.2 and 14.3 million.
* The proportion
of the aged to persons in working age is shooting up precipitously
in developed countries from Germany to Japan.
provide excellent opportunities for India — for services that have
to be provided in situ such as nursing and care for the elderly,
for services such as surgery that can be provided to residents of
those countries upon their coming here. In fact, there are
opportunities in a host of new services of an even higher order,
and ones that exist not in the future but right now:
specially medical and engineering education: educating an MBA to
world standards costs $9000 in India; in the US that degree of
education costs $30,000.
composing, formatting text, from books to newspapers: a sub-editor
costs an American paper $25,000; in India an excellent substitute
can be employed for $5,200. The editor of an Indian paper told the
proprietor of a leading British paper the other day he could edit
the latter’s paper for merely the amount that the latter’s
publication spent on renting the space occupied by sub-editors in
* Printing and
binding books: Hong Kong and Singapore, which had taken a leap in
this regard, have become high-cost centres.
* India has
exactly the same order of cost-cum-competence advantage in
professions like law, accountancy, design, engineering, tax
consultancy, financial services of all kinds.
* In software
itself, though there have been the most conspicuous successes, the
field is limited only by our imagination — in that IT fair in
Tokyo that I mentioned, I saw fine text-to-voice software that has
been developed by a small software unit in Lucknow. It was
receiving excellent reception in Japan. It can be used to quickly
produce audio versions of books upon books for the visually
Thus, on the one
side the opportunities are unlimited; on the other we have
incomparable advantages for grasping them. But as has been said,
‘‘When opportunity knocks, some complain about the noise.’’
engineers or cyber coolies? runs the headline of a newspaper
feature. In the US a software engineer earns $21 an hour, in India
even the leading companies pay him only $2, runs the text. Is this
not exploitation? it asks.
Now a salary of
Rs 100 an hour is excellent for someone living and working in
India. Why throw away the advantage? Look at it the other way.
China has accumulated its huge pile of foreign exchange reserves —
over $280 billion — not by high-technology exports. It has
accumulated them by flooding the world with low-technology items —
leather, leather products, garments, toys ... And it has used the
advantage of lower cost — and perfectly disciplined labour — to
achievement we gape at: ‘‘How have they become the manufacturing
hub of the world?’’ we ask. But our advantage — in some senses the
very same advantage China has put to such good use — we want to
foreign accounting firms out, proclaim our accountants at a high-
profile function. They have been involved in frauds abroad. On
that reasoning, shouldn’t we bar our own accounting firms also?
After all, frauds in our banks, in our stock markets, the way so
many of our firms that have run up NPAs are then able to extract
bail-out packages from financial institutions, could such things
have happened if our accounting firms had been doing their job?
And there is the
other point: we want their accountants and lawyers to be kept out,
but they must open their doors to our IT professionals! As the
title of one of Jairam Ramesh’s monographs ran, Yankee Go Home —
But Take Me with You!
Why not look upon
the opportunities positively? Why not institute courses in our law
colleges on Germany’s legal system, in the accounting systems of
the US and thereby capture the markets there? Why not multiply the
number of nurses we train, and have them learn Japanese? Why not
enable private firms to open world-class universities in India,
and thereby become educators to the world?